Market Wire: Canadian Economy Recovers Snappishly to End 2023

CalendarJanuary 31, 2024

The Canadian economy staged an unexpected rebound in the last quarter of 2023, helping reduce market-implied odds on an imminent pivot to easing at the Bank of Canada. Numbers released by Statistics Canada this morning show real gross domestic product growing 0.2 percent in November after flatlining in the prior three months, beating expectations for a 0.1-percent expansion.

Manufacturing industries grew 0.9 percent and resource extraction expanded 0.3 percent, with facility re-openings helping boost production across a vast majority of sub-sectors. The transportation and warehousing grouping climbed 0.8 percent as coal and forestry product shipments climbed - likely partly attributable to an improvement in US demand - and as strike activity faded.

An advance estimate showed the economy rebounding sharply in December, growing 0.3 percent as the manufacturing, real estate, and resource extraction industries offset modest weakness in the transportation, construction, and education sectors.

According to StatCan, the economy likely expanded 0.3 percent in the fourth quarter, growing 1.5 percent over the course of 2023. To some extent, this was flattered by rising population growth - as many have argued, Canada might be in a “per-capita” recession - but we would also highlight the role that easing financial conditions played in driving a recovery in global and domestic demand toward the end of the year. If that recovery can be sustained, nominal gross domestic product could outperform broadly-bearish market expectations across the spectrum.

The Canadian dollar is rising as we go to print, and rate differentials are narrowing across the front end of the curve. Odds on a cut at the Bank of Canada’s upcoming meeting are softening, with a move still considered overwhelmingly likely by mid-year.

Gross domestic product, chained 2012 dollars, monthly % change

An interactive version of this chart can be found on our blog here

Separately, the US Treasury Department delivered an as-expected quarterly refunding announcement, with anticipated bond auction sizes in line with prevailing consensus. The Bureau of Labor Statistics’ Employment Cost Index was more surprising however, suggesting that wages and benefits rose just 0.9 percent in the fourth quarter of 2023 - the slowest pace since 2021, and below market expectations for a 1-percent increase. Bond yields and the US dollar are backtracking slightly on the print, and hawkish risks heading into this afternoon’s Federal Reserve announcement are seen subsiding somewhat.


Karl Schamotta

Karl Schamotta

Chief Market Strategist

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